By RICK KARLIN Capitol bureau

Published 1:00 am, Friday, September 4, 2009

ALBANY — Cities, towns and counties statewide face a budget-busting rise in their employee pension costs and New Yorkers, already hit by the recession, will likely see higher property taxes.

It's the latest financial hit to come from last year's stock market crash, state Comptroller Tom DiNapoli said Thursday as he released the 2011 pension contribution rates for towns, cities, counties and the state work force.

"It is going to have an impact on local budgets," DiNapoli said.

Due largely to the state Employee Retirement System's battered investment portfolio, the percentage of payroll that local governments must contribute for pensions will rise from 7.4 percent next year to 11.9 percent in 2011.

The higher contributions are expected to cost the city of Albany $4.5 million more. In Albany County, it could cost another $6 million by 2012, Comptroller Mike Conners said.

The looming increases are just another sign that New York's generous public employee pension plans are not sustainable, say critics like E.J. McMahon, director of the Empire Center for State Policy, a fiscally conservative think tank.

"Do you think you can promise 300,000 people early retirement at three-quarters of their salaries and it's cheap?" McMahon said.

Many localities make their payments a few months early, meaning they will pay their 2011 contribution at the end of next year.

Increases for "uniformed" employees, including police and firefighters, who receive richer benefits, will be even higher: going from 15.1 percent of payroll in 2010 to 18.2 percent in 2011.

The state retirement system serves more than 1 million public employees including 358,109 retirees and beneficiaries, according to the comptroller's data.

Many public employees can retire at age 55, younger for police and firefighters — far sooner than most private sector workers. Their pensions can approach 75 percent of their earnings or more, depending on hiring date and length of service.

The rising costs come after five years where contributions remained steady or even fell thanks to a booming stock market.

But last year's financial collapse meant the retirement fund shrank to $116.5 billion as of March, down from a high of $154 billion in the spring of 2008.

With lower investment returns, local governments have to make up the difference because public employee pensions are protected by the state constitution. That's in contrast to the private sector, where workers often see their pensions reduced or eliminated with economic downturns.

"All of these systems offer pensions that are extravagant by private sector standards," added McMahon.

DiNapoli stressed the effect of higher contribution rates depends on the locality. But short of making deep cuts in services or laying off people in order to save money, many will likely have to raise taxes at some rate to make up the difference.

The 2012 rates are significant since they are expected to jump even higher if the current trend continues.

The 57 counties outside of New York City, for example, could be paying $1 billion in pension contributions by 2012, compared to the current $337 million, said Acquario.

Also on the horizon: possible cost increases to school districts and their attendant tax rates. That's because the Teachers Retirement System, another pension system entirely, is likely to announce higher costs when its report comes out this fall.

The number of retirees is growing, prompting observers to call for changes. McMahon and other conservatives believe future public employees should enter a largely self-funded plan such as that used by the State University system. Politicians, who rely on public sector unions for contributions and political support, have broached more modest changes.

Gov. David Paterson earlier this year called for creation of a less-generous "Tier V" program in which future employees would make more of a contribution and retire later than those in earlier retirement plans.

Thursday's news on pension costs prompted Paterson to renew his call. His spokeswoman Marissa Shorenstein said the governor is continuing to push for a deal with lawmakers.

The looming expenses have been both aggravated and masked by past actions of state officials and lawmakers.

Previous comptrollers such H. Carl McCall have, when the stock market was rising, reduced the amount of money localities had to pay for pension costs. But that makes the increases doubly painful when the market is down. And lawmakers in past years have sweetened public employee pensions — a move popular with unions, but which ultimately bears a price tag.

In the future, DiNapoli wants to allow localities to institute reserve accounts they could tap in bad years. He also wants localities to amortize payments, or borrow against future years to cover their rising costs.

That would include increasing from 4.5 percent to 5.5 percent the floor or lowest amount that communities pay into their pensions.

"The pension liability is there. It's not going to go away," said DiNapoli.